How Do Card Machines Work? A Plain English Guide
A customer taps their card, the machine beeps and a couple of seconds later it says "approved". It feels instant, but in those seconds the payment has been encrypted, sent across the country, checked by the customer's bank and sent back. Then, a day or so later, the money actually moves.
Knowing what goes on behind the beep helps you understand your fees, sort out problems and pick the right card machine. Here's how it works, in plain English.
The people involved in every card payment
| Who | What they do |
|---|---|
| The customer (cardholder) | Pays with their card or phone |
| The card issuer | The customer's bank, which approves the payment and takes the money from their account |
| The card scheme | Visa, Mastercard or Amex, which run the network that connects banks |
| The acquirer | The bank or payment firm that accepts payments on your behalf and pays you |
| The payment provider | The company you deal with, such as SumUp, Square or Worldpay. Sometimes this is also the acquirer |
| You (the merchant) | Take the payment on your card machine |
What happens when a customer taps
1. The card machine reads the card
When a customer taps, inserts or swipes, the card machine reads the card's details. A contactless card or phone talks to the reader by radio over a very short distance. A chip card is read through the metal contacts. Phones and watches don't share the real card number at all. They use a stand in number called a token.
2. The details are encrypted
Before anything leaves the machine, the card details are scrambled so nobody can read them in transit. That's why you never see the full card number on a modern card machine.
3. The request goes to your provider
The machine sends the encrypted request, along with the amount, over WiFi, mobile data, a phone line or through your phone's connection if it's a Bluetooth reader. It goes to your payment provider and acquirer.
4. The card scheme routes it to the customer's bank
Your acquirer passes the request through the Visa or Mastercard network to the bank that issued the card.
5. The customer's bank says yes or no
The issuing bank checks a few things: Is the card valid? Is there enough money or credit? Does anything look like fraud? Has the customer done enough contactless payments in a row that the bank wants a PIN this time? Then it approves or declines.
6. The answer comes back
The reply travels back the same way, and the card machine shows "approved" or "declined". All of this usually takes a few seconds.
Authorisation vs settlement
That "approved" message is the authorisation. It means the customer's bank has agreed the payment and reserved the money. But no money has moved yet.
The money moves later, in a process called settlement. At the end of the day, your card machine sends a batch of the day's payments to your acquirer. The acquirer collects the money through the card schemes from the customers' banks, takes its fees and pays you. Depending on your provider, that might be the next morning or a couple of days later.
| Stage | When | What happens |
|---|---|---|
| Authorisation | Seconds | Customer's bank approves and reserves the money |
| Batching | End of day, often automatic | Your machine sends the day's payments |
| Clearing | Usually overnight | Payments are matched and passed between banks |
| Settlement and payout | Next day to a few days | Money, minus fees, reaches you |
Where your fees go
On every card payment, the fee you pay is shared between a few parties:
- Interchange goes to the customer's bank. For UK consumer cards it's capped at 0.2% for debit and 0.3% for credit.
- Scheme fees go to Visa or Mastercard.
- The provider's margin covers the provider's costs and profit.
If you pay a flat rate such as 1.75%, all three are rolled together. If you're on interchange plus plus pricing, you'll see them separately on your statement.
Different types of card machine
All card machines do the same basic job. The difference is how they connect.
| Type | How it connects | Good for |
|---|---|---|
| Countertop | Phone line, broadband or WiFi | Shops and counters |
| Portable | WiFi or Bluetooth to a base, within the premises | Restaurants and pubs |
| Mobile | Built in SIM and mobile data | Trades, taxis, markets |
| Phone paired reader | Bluetooth to your phone, using its data | Small and mobile businesses |
| Tap to Pay on your phone | Your phone is the reader | Occasional sales, backup |
Our guide to PDQ machines goes deeper into countertop and portable terminals.
Why payments get declined
When a payment fails, the reason is usually one of these:
- The customer's bank declined it. Not enough money, a blocked card or a fraud check. You can't override it. Ask for another card.
- A PIN is needed. After several contactless payments in a row, the bank may ask the customer to insert their card and enter their PIN.
- The card has expired or is damaged.
- No connection. The machine couldn't reach the provider. Check WiFi, mobile signal or your phone's Bluetooth.
- The amount is over a contactless limit. The customer will need to insert their card or use their phone.
A decline isn't a problem with your machine unless every payment is failing.
What about offline payments?
Some card machines can store payments when they've lost connection and send them later. It's useful in a tent at a festival, but there's a risk: if the card is later declined, you may not get paid. Check your provider's rules before you rely on it.
Is it secure?
Yes, if you use a regulated provider. Card details are encrypted inside the machine, phones use tokens instead of real card numbers, and the customer's bank runs fraud checks on every payment. Your part is keeping the machine safe, not writing down card details, and completing any PCI security questionnaire your provider asks for.
Refunds and chargebacks: the payment in reverse
A refund is something you start. You tap refund in your app or on the terminal, and the money goes back to the customer's card, usually taking a few working days to show in their account.
A chargeback is started by the customer's bank, usually because the customer disputes the payment. The money is taken back from you while the dispute is looked at, and you're asked for evidence such as a receipt. If you win, the money comes back. Many providers charge a fee per chargeback.
A day in the life of one payment
Here's a typical £12 lunch paid by contactless at 1pm on a Tuesday:
- 1:00pm: The customer taps their phone. The machine shows "approved" two seconds later.
- Tuesday night: The day's payments are sent off in a batch.
- Wednesday: The money is cleared between banks and your provider takes its fee, about 21p at 1.75%.
- Wednesday or Thursday: £11.79 lands in your account, depending on your payout schedule.
What it means for your business
- Your fees pay several parties. That's why rates rarely go below a certain level.
- Approved isn't paid. Money arrives with settlement, so check your provider's payout times.
- Connection matters. A weak signal is the most common cause of a "broken" card machine.
- Most declines come from the customer's bank. Stay calm and ask for another way to pay.
If you're still choosing a provider, our guide to merchant account providers explains the traditional route.
FAQs
How does a card machine connect to the bank?
Through WiFi, a phone line, broadband, mobile data or a Bluetooth link to your phone. The machine sends an encrypted request to your payment provider, which passes it through the card scheme to the customer's bank.
How long does a card payment take?
Approval usually takes a few seconds. The money itself arrives later, often the next day, depending on your provider.
Do card machines need the internet?
Most do, through WiFi, mobile data or your phone. Older machines used phone lines. Some can store payments offline and send them later, but that carries a risk.
Where does my money go after a customer pays?
It's reserved in the customer's account, then collected through the card schemes and paid to you, minus fees, by your acquirer or provider.
Why did the card machine ask for a PIN on a contactless payment?
The customer's bank decides when to ask for a PIN, often after several contactless payments in a row. It's a security check, not a fault.
Can a card machine work without a phone?
Yes. Standalone terminals have their own screen and connection. Phone paired readers need a phone or tablet.